>> rose: welcome to our program. tonight from london a coconversation with the chancellor of the exchequer of the british government, george osborne. about his efforts to create an austerity program to reduce the deficit. >> the biggest risk facing the british economy is a, sent out there that we had a government that was unable to deal with the budget deficit. that a major-- now what which want to see, of course, is growth. and you know, at the moment we are seeing growth in the british economy. but i want to see growth in the british economy going forward but it has to be sustainable growth. that means reassuring people we can pay our way in the world and it also means a private look-- led recovery. >> from london for the hour, george osborne.

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captioning sponsored by rose communications >> from london a special edition of charlie rose. >> rose: george osborne is britain's chancellor of the exchequer, that means he is equiv lant to the finance ministers. prior to taking this job he served as a conservative member of parliament and a key political advisor to now prime minister david cameron. as chancellor he has launched an ambitious program to reduce britain's soaring deficit. we have looked at that this week in our conversation and here are some of the people's reaction to what this government is trying to do to reduce the deficit. >> if you want to look at radical ideas about what to do about the state, or radical ideas in terms of deficit cutting, you are suddenly looking at britain. i think britain is interesting in that way. >> rose: what are the radical ideas. >> there are two, partly one

is just the savagery what they are doing. they are cutting on a scale unlike any other, you know, cutting 20% out of most departments. that is a lot to take out. they've exempted health and that's going to be enormously difficult. >> rose: in u.s. they are not just cutting fat they are cutting to the muscle. >> they are cutting it back in a big way. >> they have to do two things, make the case for paring back and cutting back in public spending without cuting the roots of future economic growth in this country. therefore, focus on your priorities. don't just take out sort of an axe across the whole waterfront of public spending and investment. make sure that as you make your savings, cut down your expenditure, make your economy, do not axe those things on which our future economic growth depend. >> this new government here will be doing some difficult things. and people will be reminded of the fact that the decision makers-- . >> rose: but are you in favor of them doing

difficult things i understand. >> i am favor of them doing difficult things but i think it also alters the way you people look at domestic policy. >> rose: i poke to george osborne about these and other issues today in an interview earlier at his office here in london. >> here is that conversation. first of all, thank you very much for joining us. all eyes are on your government and the economists signal it right here. it says radical britain is the west's most daring government. why do you thinker they're saying that. >> what we are trying to do is we're trying to reform our public services in britain a, our education system, our health-care system. we're trying to improve our criminal justice system and our welfare system. but our most immediate challenge is the one that we found when we were elected to office which was a very high budget deficit, a largest of any major economy in the world. >> what percent of your gdp. >> it wa 11%. and that is not any of the highest in the g-20 but it's

also the highest in britain's peacetime history. a long history in this country, the highest budget deficit we've run outside of a war. and i think we objected for-- the objective for a new government is to put in place in this kind of environment an incredible fiscal plan to deal with that budget deficit. not overnight it is a plan that takes place and operates over a number of years. but i think it has in recent months, the production of that plan haseassured the world and indeed british businesses. people who look to this country to create jobs and invest, to reassure all those people that britain can pay its way. >> rose: how daring is it? >> well, i don't really see it in terms of daringing. i see it in terms of necessity. i think if we were to the doing what we were doing we would be running enormous risk as a british economy and the ability of the government to pay its way and those aren't risks i'm prepared to run. >> rose: president obama went to the g-20 as you know

and the message coming out of there is the world needs stimulus. >> well, first of all, each country has to make its own decisions about its own economy. and that is the unites states has an advantage we don't which it has got the world reserve currency and at the moment, our military, a number of people are there, we want to buy dollars. the british chancellor of the exchequer doesn't have that advantage. and we also, of course, have in many reckoning a higher budget deficit than the united states. each country is different and needs to make its own judgements. but i would say this about stimulus. what i think is the most stimulating thing you can deliver for an economy is low-interest rates. are low-interest rates. >> and not just bank rates but rates set by the federal reserve or the bank of england but the real rate, the market rates that businesses and households can go and get. and in the course of this year in britain, the real interest rate have fallen by 1 percentage point.

they stand at 3% now. britain's market interest rate. and that is a hugely stimulating thing for the british economy, and i think we have not put in place a figures call plan we would not have seen that fall in traits. indeed countries like spain here in the european continent have found that their interest rates are virtually higher than they were earlier this year. so we can see countries have had concerns about fiscal sustainability have not been able to keep their interest rates as low as they would like. wen britain through an independent central bank have been able to do that. and i think having a low interest rate is the most stimulating thing you can do for the economy in a situation like this. >> what exactly are you going to recommend on october 20th. >> what is going to be the specificity of the osborne plan? >> well, what october 20th is all about is setting out the details of the public

expenditure cuts that i provided the envelope-of-in the budget i presented to the country in june. so in june, i said, that they needed it to reason reductions in expenditure. and unfortunately increases in taxation. i increased the taxes in the budget, the indirect tax, value added tax in britain is going to go up at the beginning of next year. there is an increase in capital gains tack. look i'm a conservative. i didn't come into politics it to increase taxes but i'm a fiscal conservative and i think you need to get this budget deficit down. so i was prepared to take the difficult decisions on taxation. and then i said i'm going to review public spending. i said that we were going to have to reduce public expenditure and on october 20th we will make the allocations. not just me, this will be a collective decision of the prime minister and the members of the cabinet and we will make the choices between health care, education, defense and so on. >> rose: so there will be cuts in health care. >> well, we've already made

one decision which is to protect the health care budget so that we'll see real increases in health care. we've also, by the way, and this is an unusual decision, difficult to think of many governments in the world who are doing this at the moment. we are protecting our international aid budget, our overseas aid budget and increasing that. so that it reaches the u.n. target of .7% of national income because we believe we've got moral obligations to developing parts of our planet. >> rose: what are going to be the impact on you on health care as we know it today in britain. >> i would hope the health care improves because we've managed to provide real increases in the health budget. allied with reform. and that a very important part of the story in many of these areas of public expenditure. we are also seeking to reform these services to improve their productivity, to get more for less in many cases. and make sure that the service the user group receives whether it is the school trials or the person

on welfare or the person who depends on our policing services, that person gets a better service. >> rose: how much money can you save by doing that, by efficiency in the health care budget. >> well, it is not just the health care budget. as i say. but i think efficiency in reform are driving our waste. will deliver very substantial benefits. for example we've asked all departments to look to reduce their central administrative costs by a third. that is a big challenge. this building, here we are, we are in the treasury here in central london. this department is looking to reduce its budget by a third. so we are driving out administrative costs. we are seeking through structural reform to improve the productivity of services that users of those services more in charge of the health care and education they receive. and then make difficult choices about the allocation between departments. and our commitment to the national health service, the health care means that we've already signaled that we will see a real increase in

that budget. >> was that a political necessity. >> i would say it is a political, with a small p. in the sense that we where in a democratic country. the united states. and as a country, we come together through our parliament and our elected government to make decisions about how we spend money. and in the end, the decision how much do you spend on health care versus how much you spend on the transport budget is a political decision with a small p. it is not necessarily a party decision because actually first of all we are in a coalition government. two of the three major political parties in britain are working together on this problem. and of course we are also trying to engage the public in a big decision about what are the priorities for this country going forward. and you are already seeing some of those playing out even before october 20th. health care is a priority for people. welfare costs are something people want to reduce. >> rose: how about infrastructure. >> well, infrastructure i think is very important for the economic future of this country. and indeed many others.

so we are not making further cults to the capital budget. the investment in the road and rail and capital infrastructure projects. in an aggregate. now of course individual programs, transport, defense, housing and so on, we have to make decisions about how we allocate capital between them. but in total the capital budget, the investment if you like in the infra-- infrastructure of the country is to the going to be cut beyond the plans that we inherited as a government. >> i saw a businessman this morning at pie hotel. and someone who is sad abou about-- is savvy about the economics and has done very, very well. i said i was going to see you. he said here's the problem with what george osborne wants to do. he said number one you need investment. number two, you do need in order to stimulate growth, a public and private investment. and he said ask mr. osborner

what does he think the lessons of herbert hoover are. >> well, i am not going to get into a great discussion about the great depression and policy responsibilities of the great depression. >> rose: but the idea is that you spend your way out of it, is it not? >> well, look, in britain. >> rose: to create growth. >> in britain there are automatic stabilizers. there was an increase, there has been an increase in welfare spending and those are the keynesian automatic stabilizers operating. but if you look at the situation situation facing the united kingdom at the moment, and you remember we are in a continent where there has been a considerable concern about sovereign debt issues. >> rose: right. >> i judge that the biggest risk facing the british onomy is a-- sent out there that we had a government that was unable to deal with the budget deficit. that is a major concern. now what i want to see, of

course, is growth. and you know, at the moment we are seeing growth in the british economy. but i want to see growth in the british economy going forward, but it has to be sustainable growth. that means reassuring people we can pay our way in the world. and it also means a private sector led recovery. >> rose: is it essential to do it now? or could you have postponed it. >> i think if you think of when we came to office in may, it was actually as it happens at the height of concern about sovereign debt issues and a number of european countries have now had to introduce programs to reduce public expenditure. you've seen that in greece and spain and other countries, in france. where you have been this week. of course it a very live issue how we are going to reduce our-- . >> rose: they are in the streets because they are talking about increasing the retirement age from 60 to 62. >> the french have that particular approach. you know this is not, britain is not alone in facing some of these challenges. where we where unique is that we are the country with

the largest budget deficit and i would like to think that we are leading the world at the moment in having a critical plan that has reassured international investors and indeed the domestic business community, that actually britain's got a way out of this. and alongside that, it doesn't get nearly as much attention as of course the measure to cut public spending and so on, we have put in place a series of other measures to boost the private sector. for example, we are cutting our headline rate of corporation tax, the headline rate to business tax by a penny a year, 1% a year down to 24%. give us the lowest corporation tax in the g-7. and that is a huge advert in this program, by the way, it is a good low corporate tax environment. >> rose: that's what ireland did exactly. >> and i think now they were able to take it quite a lot further than 24%. but nevertheless, from we're taking it from 28% to 24%. if you think of many people

in my situation, many people sitting in a room like this, in faced with a very high budget deficit we would be very tempted to put up business taxes. but because, precisely because i want to give-- given growth and private sector investment and job creation, that i'm actually going in the other direction and reducing business taxes. >> rose: but the president is making in the united states the exact opposite decision. >> every country has got to make his own decisions. and the american administration has got challenges just like the british government has got. challenges. but actually, if you look at, from what i can gather, the u.s. administration is concerned about infrastructure. we've concerned about infrastructure. we're protecting the capital budget. they want to encourage business research and development. and innovation. we want to see more research, innovation and development. we want britain to be a competitive place to do business. that's why we where cutting corporate taxes. we've got particular cuts, tax cuts for people without want to create businesses

outside this part of the country, the southeast of england. so we are using a number of policy instruments. yes, reduce the budget deficit but also to stimulate private sector recovery, growth, investment and job creation. >> rose: i assume from a political standpoint one crucial development is your ability to explain to the british citizens the consequences of not doing it, and how you have tried to make it fair. >> yes, i think that is very important part of the job, to communicate to the public why we believe this is necessary. and actually one of the striking things about britain, something i don't think i would have predicted if we did this a year ago is that there is an overwhelming view in the british public that the government was spending, that spending needs to be cut. they understand a difficult decision. of course they have a debate about which part of the

government budget should be cut. but the general view that public expenditure has got too high, that we need to cut it, and that this should be done in a way that is fair. by which i think people mean that all parts of the contribution is one that is pretty widely shared. >> rose: it is not only a necessity of the deficit, as i understand it, but for you and prime minister cameron it is a philosophy that britain needs to change the balance of private-public, whatever the big society is about. >> well, it, david cameron and myself, we are, when it comes, we are a hard about economic thinking is fiscal conservatism. we are fiscal conservatives. this is well understood debate in the united states. on the central rights of american politics we are fiscal conservatives because

we believe particularly for an economy like the united kingdom you have to show you can pay your way in the world. we also believe that you need to see a private sector recovery. and that in the end, that is going to be a sustainable source of growth. not deficit funded public expenditure in perpetuity. and if you look at what happened in the united kingdom over the last ten years, it became rather unbalanced. there are parts of this country where sadly we did not see enough private sector job creation. for example. for every ten private sector jobs created in the south of england where we are doing this, only one was created in the north of england. now that is not a sustainable position going forward. and of course one of the problems. united kingdom was that we were building up this budget deficit not in the middle of a banking crisis and recession but actually before that in the good years. and i used to borrow a phrase from john f. kennedy, and tell people at the time to fix the roof is when the

sun is shining. and we weren't doing that in the middle part of this decade. unfortunately, we not only had the budget deficit at the end of this period we've been through the recession in the 1990s. but we went into the crisis with the highest budget deficit in the world. >> rose: tell me what big society means. is this an important idea that we haven't seen before or is it simply one more person. >> there is such. >> rose: this is how we see the balance. >> i guess what it would-- the way i think about it is that there is such a thing in society t is just not the same thing as the state. and that i think where this from previous conservative thinking in this country at least s that we were very focused on the individual. and there's much more emphasis in what we are trys to do on the community, on the family, on society. and-- . >> rose: on nongovernment institutions. >> nongovernment institutions, understanding that they support a vibrant and healthy and strong community up there. and that the state doesn't have all the answers. now the state is very

important. and no one is suggesting, for example that we shouldn't in britain have tax-fair funded health care, tax fair funded education, welfare to work schemes. you know, as one 6 the classic functions of government like law and ford. but we are saying that there is space also for community institutions, for societal institutions as well. and that's what we mean. and it is divi think from the message of, for example, margaret thatcher's period in office where the focus was the famously on there is no such thing as society, it's the individual. and i think conservative thinking in britain has moved on from that period. and the big society encapsulates that. >> rose: and ronald reagan's philosophy was government is not the solution, it's the problem. >> and you see, i wouldn't say that. i would say that government can be part of the solution. but it can't be the whole solution. >> rose: what seems to be interesting about this and david brooks, you know, is one of your biggest fans about this, and because he's always looking for new ideas

about the way we govern ourselves. and the way we promote sort of growth across-the-board. i mean he talk approximates about the fact that this is an encouragement of institutions. you were defining your relations between the government and people in a very different way. and it is not just a traditional notion of this much government and this much private. it is looking to new sources of support for society that is engaged and compassionate and growing. and sustainable. >> yes. absolutely. and let's think of problems which are commonplace in advanced economies like the united states or britain. there are public health issues. drug dependency issues. we know that big government solutions don't always

succeed. that they're not the only anne. that it's not all having a big health care campaign and setting up out of our hospitals big public programs. that's fine. they can be successful and play an important parent but they can't be the wol thing. you need to engage community groups, charities. as well as families in these problems. perhaps a statement of the obvious but often gets forgotten by government, the family is such an important institution in all of this. and we have long debates-- . >> rose: what are you going to do to the family. >> well, to support parental responsibility. encourage people to take responsibility, for example, for being-- . >> rose: this is a public education campaign. >> it is about engaging with parents and communities and society a common problem. and not thinking that you can on the desk behind me write some order that in every school in the country this is going to happen at 10 in the morning and

british discipline has a place in our classrooms and indeed in our communities. we know now that those sort of top down answers don't always work. >> rose: i understand and i think was hillary clinton that once say "it takes a village". >> lots of people from different parts of the political spectrum have grasped towards this idea. but i think actually as speaking in a british context i think the conservative movement has some insights here, brings some insights to the table that as i say there are-- we shouldn't be-- we shouldn't see the government as a-- . >> rose: explain to me how if not just words, it's not just encouragement, it's not just public, a call to public citizen participation. >> well, first of all t is partsly that. ands there's nothing wrong withth calling the citizenship, citizen participation. and there's nothing wrong with using some of the nudge

theory. >> rose: it hardly represents a new-- . >> let me give another example. which is real expansive. educational reform, one of the biggest problems under-- undertaken here which is to move away from an environment where it is the schools choosing pupils, we get pupils and parents choosing schools and there is a real parental choice and involvement and where parents want to come togeer ithis country and create a school, they're able to do so. and indeed, that is happening already in many communities around the country. we've already passed through the parliament here, legislation that has given groups in our society, communities, the power to create schools within the education system. so funded by the taxpayer, but a break away from what has gone before. which was the assumption that not only would government pay for education, but also would provide all the education.

and we're saying look if other people want to come in and provide state funded education, now that is one of the most exciting reform programs that we've got. part of it is inspired by what is-- . >> rose: and doesn't cost a lot. >> well, it's-- it's about the allocation of resources, not necessarily more or less resources but we've been inspired partly by what we've seen work in parts of the united states. for example, new york schools reform has been very influential in the education debate. >> rose: you believe in shorter schools. >> it a version, i a british version of the charter school. >> your prime minister in an interview with me during the campaign, he said his government was about compassionate conservatism. where is the compassion going to be? >> well, the compassion infuses everything we do. that we are looking as we undertake some of these very difficult decisions on the budget. and after all we are not the people that ran up the budget deficit. but as we deal with that, to do it in a way that is fair, that tries to protect, let

me give you an example. i have had to make a difficult decision on freezing the pay of our public servants across-the-board. but i have excluded those on some of the lowest salarys from that pay freeze. in ply, in the budget in june, i had to make some very difficult decisions on some of the public expenditure programs. but i was able to increase something called the child tax credit which goes to some of the poorest families in britain. so i think we're taking decisions that are part of a modern compassionate conservative approach and doing everything we can to protect the most vulnerable conscious that the people who suffered most when countries control their public finances can be the poorest. and which is one of the reasons we are frankly so angry that we found the country in the mess we found it in when we came into office. >> how long do you think it will take you to return britain to the growth levels that it aspires to.

>> well, i haven't set a target for that. and indeed what i have done is taken forecasting out of this institution and a made it independent. but what the independent office of the budget responsibility, which we've created is forecasting to e british economy as indeed many others are, is stable and sustainable economic growth that you i think will be more strongly founded than the debt fueled growth that this country and others underwent in the middle part of this decade -- decade. it's a much more sustainable economy built on investment, exports and private sector growth rather than a debt fueled bubble which was based on overinjected households, overleveraged banks and an overborrowed government. >> "the wall street journal" said you want to eviscerate all the programs that the brown government and the previous government of tony

blair. >> that's not true. i mean there are of course things we build on and things-- indeed, the prime minister david cameron on the steps of downing street, the first words he addressed to the country as prime minister acknowledged some of the good things that the labor government had done before us. let's take an example. the minimum wage which was we're not proposing to get rid of that. so we're perfectly willing and indeed want to give praise where praise is due. and of course the nase nature 6 politics to allocate blame where blame is due. >> rose: what other labor programs from the previous government dow look with fair on. >> one of the things that they achieved and actually i was one of the conservative mps at the time without wanted my party to catch up a bit and welcome these things. i think we became a more socially tolerant country, civil partnerships were introduced at the time in this country.

that enabled homosexual couples to commit to each other. so there is a good example of a country, of a positive, in my view, official policy move that i sport at the time, support now and will give credit to the labour ministers who introduced it. >> rose: what is the problem saying that the state supports gay marriage. >> i think a civil partnership is an appropriate institutionive. think that is something that works for gay couples. i think it's a way for them to demonstrate their commitment to each other. >> rose: most of them would favor, rather have a state supporting gay marriage and all the rights of marriage. >> personally speaking i've always been happy to have that debate and discussion about that. but as it happens i think we're if quite a good place out at the moment with civil partnerships which are working well. and as i say-- .

>> rose: why change it if it's working. >> it's working well and actually we're talking earlier about the big society and commitment and community. and this is one very visible way that the state enables people to make a public commitment to each other. >> rose: this is the same economist magazine, peace, which comes to the question of daring. daring or daredevil. if boldness is the test and the strategy of cutting the deficit cannot be-- if boldness is the test strategy for cutting the deficit cannot be faulted. thgh forne may for the brave, it can trip up the headstrong. debate rages not only britain over whether it makes economic sense to fight, to tighten fiscal policy so much so fast, and austerity plans may not be achievable without ripping vital public services to shreds. how do you define where that point is. >> nass's what we've got to

avoid. and i think it perfectly possible in a countries that's frankly been overspending over the last decade to find savings. to undertake reforms. to actually improve the quality of the services that people receive. and i refuse to accept that you can't make those savings at the first thing that suffers is the service that people provide. >> rose: can you assure the citizens of britain that those vital services they need will not be -- >> i can absolutely-- . >> rose: i can absolutely assure the people of britain that they will get the health care, the education, the policing services that we need in the 21st century and that i believe the services will improve. >> what will they not get that they have been getting that they may consider necessary and essential. >> well, i think there are difficult choices. i have had to remove certain things. for example, every newborn child in britain used to be sent a check by the government which they could put into a savings account

that was available for them when they were 16. we called those child trust funds. i have had to stop that program. so that sadly a check that no longer gets sent and indeed will shortly no longer be sent to every child in this country. so we've had to make decisions. we're going to make some very tough decisions on welfare where we believe actually that lifestyle choice of sitting on out of work benefits all your life which sadly too many of my fellow citizens do has got to come to an end. >> rose: how are going to do that. >> by strongly incentivizing work and making it clear to people that if they are able to work. i am a not talking about disabled people. >> rose: are you not suggesting that people, everybody who wants a can find a job or are you. >> i'm suggesting that there are many people out there who should be actively looking for work who sadly aren't at the moment. and that a partly because all the incentives in the current welfare system a trap them on a life of workless. >> rose: what percentage of the people unemployed do you think could get a job if they tried hard?

>> well, let me put it in a different way. even if the good years, right, and by the way unemployment is falling at present in this country. but even in the good years, in the middle part of this decade, there were 5 million of our fellow citizens who were on out of work benefits. now i'm of course, some people, many people who have real disabilities and challenges and they need help. and they will get help. indeed, the hope the service they get improves but there are also people for whom frankly it was too easy an option to sit on out of work benefit. and that's not fair to them, not fair to the community, not fair to the taxpayers. >> rose: so you think enough incentive to go get a job, the fact there is not going to be any more unemployment benefits. >> no, no, no charlie. i'm not saying there aren't going to be unemployment benefits. just the incentives to get into work will be improved. let me give you another specific example. we found in coming that some people in this country were

receiving housing benefits, support for rent, of up to $100,000 pounds for one family. and you know, that is totally unaffordable. one family would be receiving $100,000 pounds, you know, as a much as the taxes of 16 average working people pay just to support the housing benefit of one family. so there have been excesses that we have needed to tackle. and you know, it is about in this area, about compassionate view that in the end the best thing for people trapped in pov ert, trapped in low ambition, trapped in out of work benefits is to try to get them into work and give them ambition and aspiration and get them moving on in life. >> rose: when you talk about britain's role in the world first. the defense budget. my impression is that you are prepared to look at the defense budget and if necessary caught it within. >> yes. >> more than 50/50 chance it

will be. >> well, there is a particular challenge with the defense budget in the united kingdom. which is the budget that we've inherited, the budget whose plans i looked at the first day i came into office was heavily overcommitted in terms of procurement breakouts. buying equipment. and this was a-- going to be a huge problem whether or not the country faced the kind of fiscal problems that we face. so we are going to have to sort out the defense budget. but instead of just doing a numbers job on it, we've wanted to connect the defense budget with other part approximates of britain's security policy. we've set up a defense review, a strategic defense review that it crosses government, intelligence services, our international aid efforts. and yes, defense. and that work is all being brought together and will be published and will help

inform the decisions that we're going to make on the defense budget. >> how do you define britain's role in the world? >> well, i think we are a od and positive influence in the world. i think we can bring a great deal of knowledge of different parts of the world. we're an open trading economy. we have about the most open economy in the world. anyone can come here to succeed and invest and prosper within the limits of our immigration system. but we allow foreign companies to come in here and invest and take over companies that actually in the united states, indeed dare i say frauds, people would look askance at a foreign company coming in if it were an open economy, we don't have a political argument in this country about protectionism which i think is a very healy thing and i think as a result, we are a strong and positive

voice for an open democratic trading world. and you know, i think it is a good thing for this country. >> britain's role in the world is defined by the fact that we promote free trade. >> i think it's part of what we do. i think we lead by examp that we are an open trading economy. i think we also are-- our other sources are a force for good in trying to bring peace and stability to troubled parts of the world like afghanistan. >> a commitment to afghanistan. >> the commit foment afghanistan is to see the plan succeed that general petraeus has now put forward. and to get british soldiers out so that the afghans can take responsibility for their own security. >> can that work, do you think? >> yes, i think it can. and i went to afghanistan early this year. quite unusual decision for a numbers man, the money man. because i wanted to see what our british soldiers and indeed the american soldiers were doing. >> and you find out what? >> well, first of all, they

are doing an heroic job. second that actually there is progress. it is not the transformation overnight that perhaps peel once thought possible eight or nine years ago. >> rose: what is the goal? >> the goal is a stable afghanistan. a at peace with its neighbors that is not a haven for terrorism. that can take responsibility for its own security. and obviously we will be providing help and support for afghanistan. it's just for many years things like our international aid budget, through the training support we offered to the police and the armed forces of afghanistan, brought what we want to see an end to is the presence of combat, british combat troops in afghanistan and you know, we have's said by 2015 that is what we want to see. >> how long have you known david ceron. >> how long i have known david cameron. i first met him in the early

1990s. i was a junior researcher in politics. i got involved in politics and he was already quite well established in that world. >> as a what? >> as a-- he was working in the home office which was our security department. homeland security department. >> jim baker was a former political guy without also was secretary of the treasury before it became secretary of state. it was interesting. you ran the campaign. >> yes. >> the recent election, yes, i did. >> are you a political guy as well as a money guy. >> go ahead. >> yeah, i mean look, you know t wasn't a one-man effort, the campaign, it was a selective effort and we had a very good team but i chaired the election campaign, yes. >> and the coalition is working. >> the coalition is working extraordinarily well and i think it's worth reflecting. >> it is a remarkable achievement. something again no one would have predicted remotely possible a year ago, that

two political parties in britain in the country which has no real tradition of coalition governments, two political parties have come together to work together in the national interest. and i think actually because people can see that, i'm not saying it is something we planned before the election because we were hoping to form a majority government. but the way in which david cameron and nick chraing, the liberal democrat leader worked to resolve their differences, form a stable government, i think has been enormously reassuring. >> and is sustainable. >> i think is absolutely sustainable and we are committed to a five-year government. >> how much is david cameron like tony blair? >> well, i don't know tony blair very well. but i-- we are very different people. so i'm not sure ther's that alike. you i think partly what i-- what i would say-- . >> rose: they came in with a mandate and with a vision to change government, tony

blair did and david cameron did. >> we are shaped by the political education we have and the world we grew up in. david, myself, other members of this government. and part of the world we grew up in and part of the world that we matured in politically was a world in which tony blair was the prime minister for a decade. and we have certainly learned lessons from what worked but also what didn't work for him. and one of the strongest lessons from that period, i think something tony blair himself acknowledges, is that he w w too slow to have brought change. >> he does say this. >> and we have certainly learned from that. and that is why we are determined to hit the ground running to undertake these big projects-of-education reform, welfare reform and so on. rather than waiting for some other point to put it off to some future date. the opportunity is now. and we see it. >> he talks about the

complexity. is the complexity of government different than you imagined? especially for the prime minister. >> if i had read that part of tony blair's book, he talks about the complexity of government versus the simplicity of opposition. of course government is a complex business, probably at all times in our history but particularly today. and but i think in the end you've got to have some basic tenants that are you sticking to, some principless you are holding to to guide you through. otherwise you are really all, you are the ship of state difficultys this way and that way with the waives and you want to be heading into it. you want to be making your course through stormy waters. and that requires the basic principless which i think can guide you in opposition but also are essential in government. >> what are the difference in the principless of new labor as articulated by tony blair and the principless of new tory as articulated by

david cameron and you. >> well, i think there are many. but let's take one that has been, you know, the time in this institute. which is in the end, they didn't root their program for government in a fiscally responsible approach. they spent too much money. they didn't have any regard to the public finances and they recognized them. now that is a very different approach to the one that we are pursuing. i think also tony blair, i think was too much of a believer that you just had to pull a lever in a ministerial office or on downing street and that something would happen on the ground that there was a wire connected directly from the prime minister's guessing or the chancellor of the exchequer's guessing to things out there in our society. and there was a belief that everything could be run from the center. that all you needed was

better targets or better programs that would direct things, resources. you know, a big difference is modern conservatives believe that in the end communities and people are much better at make decisions about their lives. they need to be resourced often to do that. but that localism as we call it in this country is a huge difference. so we are not trying to run every aspect of the schoolchild's day from the center. that is a big difference that whole kind of target culture driven from the center which is the way that tony blair throughout his premiership tried to run this which country, actually ended up as an idea that was bankrupt. financially bankrupt but also actually bankrupt in terms of public policy. it didn't work and the outcome sadly deteriorated. the social mobility went backwards. education performance didn't keep up with the rest of the world. we didn't get improvements in health care we should

have seen for the money we put in. i think that is partly because of his governing philosophy. >> a third way was a flawed way. >> i don't think it worked. it didn't deliver what was promised. and in the end, you know, it lead to unproductive public services. and unsustainable budget deficit and tadly a great deal of disillusion about the way politics was conducted. i mean one of the things that tony blair is prime ministerly responsible for is a catastrophic loss in the british public confidence in their government. and that is one of the things we've been trying to restore, you know, the reason i mentioned it earlier in this interview, the reason i've had to take budget forecasting and the economic numbers out of this building and an independent institution, people have lost confidence in them. so you know, i think you know, he must bear his responsibility for what went quite badly wrong in the

last 13 years. >> rose: ten years ago you were in your 20s. 10 years ago you were 29, correct. >> yes. >> rose: now are you 39 and you are one of the most powerful people in the government. in those ten years just using one benchmark, how do you think the world has changed so that the responsibility of government leaders in britain is different. >> i think the world has become sadly a more uncertain and dangerous place. you know, ten years ago we have not had 9/11. we had not had the wars in iraq andafghanistan. we had not had hit banking crisis and the trauma that has has caused. all those events have made for a more uncertain world. and i think that parts of the government are less clear. we've been sitting here at the end of the 19 the 0s. we would have said well it's

a pretty easy job for government. we've just got to basically try and keep a light regulation, low tax regime, and be able to reduce tack, i happen to believe that too much regulation can strangle business but government's role has become much more complicated i think. and for example, issues about the interfacial between government and financncnc have become vastly more complicated than they appeared to be ten years ago. so it's become a more complicated and dangerous world. >> when people say we need something on a global regulation you say not on your life. >> well, i believe there should be global regulation that is appropriate. for example, new requirements for banks, organized. >> which part of the financial reform act. >> but it's got to be, of course, proportionate and appropriate. >> -- mentioned to me what he has learned since he's been out of office.

which was the reality of the shift to the east or to asia. how does britain in a sense engage a real ideal that there has been a dramatic change in the world order. >> well, first of all, we're not to be frightened of it or resist it. we should welcome it. because what it's really about is hundreds of millionsof people who spent the early part of their lives, indeed the lives of their families before them in grinding poverty. coming out of that grinding poverty and being connected the world economy and having something for the first time in their life that lists them above poverty that is what happened in my lifetime in india and china and indonesia and all sorts of other countries. >> rose: what sorts of people have come out of poverty. >> that is a fantastic force for progress and good in our world. but it has a consequence. which is that china and a india and other countries want more of a voice. and more of the economic

power of the world. >> rose: and go serve it. >> absolutely did deserve it. >> i've only been in office a few months, i've made the visit to india and china that actually the chancellor of the exchequer five or six years ago probably wouldn't have done. so i think the architecture of the world, the g-20, it is indeed already a reflection of it, the imf, needs to understand that economic power is more broadly based in our world. i think that is a good thing. and i think a big open competitive trading economy like the united kingdom has nothing to fear from that. >> rose: does that mean that brazil and india should be on the security council for example of the united nations. >> i think there is a case of giving more people seats in the security council. india i think offers a very compelling case for india to be represented on the security council. after all, it is a fifth of the world's population, virtually. so yes, i think there needs to be changes to the

architecture of the world. we're going to hav discussions in washington in a few weeks time about the imf and making sure that an institution created after the second world war reflects the world of the 2 1s century. so yes, it is not, we've got to change the international institutions. but i think we also have to change our thinking. and in america, and in britain and other parts of europe, we shouldn't think that we are the only thing what is happening in the world. there are lots of good things happening in the world. >> if you look at today from where you sit in this very office where we are sitting now, and around the world the potential growth rates from china and a india and brazil, even the united states are significantly, significantly greater than the growth rates in europe. what is the implication of all this? >> well, as i say, good growth. again we want to see,

overall growing and i think it is a great thing that some people in grinding poverty in india, millions of people, have been lifted out of that poverty and accepted in the global economy for the first time. there is a question for europe, a a big question, which is how are we going to pay our way in the world. how are we going to grow and succeed. i think britain can lead by example but i think we can also encourage the whole of europe to undertake the kind of structural competitive reforms we need to make sure that we this is still a great place to invest and do business and trade. and i think britain is those things. and we encourage our continental partners to do even more. >> rose: speaking of your continental partne, if you look at greece and the debt crisis there, has that passed us? >> well, i think we have obviously done less-- it is less volatile than it was this spring. but the-- looking forward, in order to avoid a return

of market concern about sovereign debt issues, countries have got to announce fiscal plans, credible fiscal plans to reduce the deficit and have got to implement them. and that is what we're doing in the united kingdom. so i think you would see a return of volatility and a return of concerns about sovereign debt issues if countries backed off the fiscal programs that they have committed to publicly. so that's the challenge now i'm very well aware in the job i occupy it is one thing to announce the plan. >> but is it possible do you think that the government that you are a central part of becomes a laboratory, that the world will watch and see can a government programically-- dramatically reduce its deficit without rioting in the streets and damage to the social compact

what its people? >> well, britain is not a petrie dish or a laboratory animal. we are a country where 60 million people want to get on and have good prosperous lives. and i think we demonstrate you can do that by yes, having a credible budget deficit plan but also by being an open trading economy that resists protectionism. a world where actually britain can show the public service reform can improve education health-care services in the 21st century. and britain can also show that you can reduce your business tax rates while you are doing all this and attract them with investment. and i think those are the ingredients that will work in britain. and they will be the ingredients that will work elsewhere in the world. if we are leading by example, so be it. but we are doing what we think is right for this country. >> rose: we will be knocking on your door again. thank you very much.

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